#047: Allen Jones – A Musician’s Guide to Taxes

It’s tax time! Before you run away screaming, we’ve provided this resource to help guide you through process of properly reporting your music income to the IRS. Allen Jones, from Portland Community College, stops by to break it down and aide us musicians in what is usually an ominous task. YOUR ATTENTION PLEASE: This information is provided only as a guide to point you in the right direction. Each individual has a unique tax situation, so it’s important that you seek the advice of a licensed tax preparer. In others words, don’t blame us if you get audited! Now stop procrastinating, and go do your taxes!

The form Allen has in hand for the discussion is the 1040 form. Download a copy here.

Allen did a great job talking about musicians and taxes on the podcast. Our record company, Pig’s Snout Music, Oinc. (look it up in the Bible – Proverbs 11:22) is an S-Corporation that was formed to help us with revenues and expenses from shows and CD sales for my wife and son’s bands. It has been great to have the offset of deductible expenses for the 4-10 thousand we make some years. We use a professional tax guy who has always saved us in the long run. Someday, Andrew Goldring will make some real money! Keep up the informative podcast.

In 2005, while I was still working at CD Baby, I decided to write off the mileage I did for music purposes. Well, last year, I got audited for the first time, and for that specifically. It took almost a year of correspondence with the IRS to finally win my case.

They are vague as to what constitutes as a legitimate mileage log, so I printed my calendar from 2005 from my website and sent them that as well as a mileage worksheet that I put together simply by googling the distances between gigs and putting it all in a chart form. The response from one of my case workers was that “anyone can manufacture a website calendar” and that I needed more proof. I asked them what sort of proof I needed and they suggested some sort of odometer readout form oil changes, etc. Since my van ran on natural gas and didn’t need oil changes, I didn’t have this sort of proof. After doing some research, I later confirmed that an official odometer reading is not necessary to claim mileage.

Then, a new case worker changed the nature of the audit and pointed out that since I didn’t make a sizable income, that my music in 2005 was considered a hobby, not a career. I explained to them that the investment that I made in my music in 2005 has allowed me to make most of my income in 2008 from music instead of a dayjob. Any other startup business is allowed a loss in the beginning and not be considered a hobby. I still don’t understand this part f his argument, but he said that it would be an exception if I had participated in any charity events. Well, we happened to do that Katrina benefit that year, which was listed on the calendar I sent them and for some reason, it helped my case. After almost a year, and my case being transferred to about half a dozen unaccessible case workers, I finally won my case.

This is not a process I wish to go through again, though I did learn a lot about the tax system. I think it would be helpful if the IRS had a better understanding of the musician’s reality so that they don’t set up process which deters us from filing our taxes honestly.

Thanks for sharing! I knew there had to be at least one listener out there that had run into some trouble with the IRS. In your case, it sounded like they were just harassing you a bit. Milage is definitely one of the things I’ve heard that they like to pounce on.

Most bands don’t realize they are in fact independant contractors when they book a gig. As such, if the venue doesn’t carry the needed liability coverages it can and does bite the performer sooner or later. Whitesnake is one such example.

Mechanical Licensing vs digital licensing. It’s been glossed over in the past but too few understand the very important difference between the two. In fact most have no clue that they need both if they produce a cover song that might end up available as a digital sale as well.

Performing Rights Organizations. A broad topic that has many ramafications to the indie artist. To join or not to join. How it affects the performers gig count etc.

In some areas covers are not allowed because ASCAP/BMI etc strong arm the venues. Trouble is, if the original material is also registered with one of the P.R.O.s then it too becomes a problem.

Promoters, things to look out for when hooking up with a promotion company/promoter. In my area we have 3 big promoters. Of them, only 1 provides the bands/acts with real paying gigs and actively promotes those bands/acts.

The other 2, promote themselves and book anywhere from 5 to 13 performers at a single event for no pay or gas money if that. These acts think they’re building a following but aren’t.

Ownership. Who owns the bands material, gear, name. Ways to decide and possible legalities(there are many) to consider.

There are more but those strike me as most needed by the widest audience.

Those are all great suggestions! I actually tried to get an episode about insurance going, but none of the insurance companies would return my emails. These were companies that were geared towards musicians as well.

I’m sure you’ll see some of your suggestions covered in the future. Keep the suggestions coming!

I forget sometimes that most musicians might not know about what the implications are from being self-employed. I’ve been an independent piano technician for 6 years and had to learn right away about 1099’s, schedule C’s, quarterlies (a big omission in the podcast BTW!), and deductions. It’s great that you guys covered this area. As my band launches it’s first album, website, etc., I’ll be the one to educate the other members about this stuff (not the singer though, I got him on the podcast too).

The next step in the process is forming a corp. That would probably involve too much intricate detail for a podcast but it’s worth mentioning as an option for bands that become financially successful, especially in terms of their tax liability.

As with anything, knowledge is power. I’m grateful for the D.I.Y. podcast (and I’ve listened to every one) for that very reason.

Thanks for doing this.

Dave

Hi. Great show! One thing I’ve learned about 1099 forms is to not file my taxes too soon! I had an experience where I had already filed my taxes, but then received a 1099 form from a place I had gigged at the previous year. I wound up having to file an amended tax return which was a bit of a hassle. Although I think you are supposed to received 1099 forms by January 30th, I frequently get late ones. So now I wait until April every year to file my taxes.

Thank you for the podcast!
I have been self employed with my music career since 1987. CD baby carries two of my CDs. I lead a variety of Latin Bands from 4tet to 10 pieces, I send 1099 forms to over 25 musicians every year(including a lot of band subs of course,)I file Schedule “C” itemized deductions, and yes, I add all those little receipts from a million things I claim to be a business expense… The truth of the matter is that it is one of most grueling things I have to do each year for my business, even using Quicken or Quickbooks and other programs like that, you still need to upload the items and the info one by one… To the point: it would be a great idea if CD Babe would create a program or some kind of service where we can subscribe for a small fee, and upload this stuff in a easier way… Just food for thought… Any ideas?
Nothing has made me think twice about been a band leader (rather than just free lancing)like the stress and the time consumption of the paper work involved in taxes.
Thank you!

As CPA who is also a musician, this is good information to start off with. In my experience, its all about keeping up with your expenses during the year, and not trying to figure it all out at the end of the year. Use a spreadsheet, quicken or even quickbooks (or programs like these) to capture all expenditures when they happen.

Many artists (especially with internet streaming and regular radio play) need to know about Soundexchange.com; the RIAA digital performance royalties agency. Free to sign up – but many of my gigging friends who have do hear their songs on the web and on the radio – don’t know Soundexchange is holding money for ’em.

Another good tip to keep track of expenses is to have a credit card that you use only for business expenses. You get an itemized statement every month that you can the sum up right onto the Schedule C. That way you don’t have to try to save every little receipt.

Great podcast! Most CPA’s can handle an independent muscian/artist taxes. Although you may be able to figure it out yourself or get a friend or family member to do, but in my opinion get a professional to do it because this is something you want done correctly and its not that expensive as most people think. Anyways great information… I love CDbaby.

I have had some bit of music income for many years with the expectation that one of these years (especially after I retire from my day job) that I will actually make some serious bucks in the music business. I have always done my own taxes (I did a season with H&R Block many years ago – and I know how to use a spreadsheet) and I am very happy to hear that Allen’s interpretation of what is proper is much like mine, gives me confidence that I’m on the right track. I did claim a loss the year I produced my last CD, but I generally avoid that – just a big “red flag” that I don’t need.

THANK YOU SO MUCH! I am a typical last-minute unorganized self employed musician, so this is such an enormous help.

Julie

Hi:

I need some advice:
I didn’t make very much money this year in regards to my CD sales and performances …I would almost call it pitiful. Needless to say my accountant is using this as a loss on my taxes. I teach music to pay the bills and always wind up owing. I did have some write-offs as far as buying new equipment which I use for teaching which helped greatly.

The problem is every year… since I am an original artist & am still struggling with making money off the CD’s and original performances my accountant claims the IRS is going to audit me one of these days because I keep declaring a loss on the music portion of my taxes. I tried explaining that this is the nature of the music industry and it takes a long time…he has suggested I find another accountant because he doesn’t understand why someone would go into business to make money and have a loss every year. I have a ligitimate DBA so I can claim expenses but for how long? I need some advice on this.

Your accountant is right! You can only claim a loss for 3 years without showing some profit. Let’s be honest. A business is designed to make money. It doesn’t matter how difficult the chosen field may be. If you’re not making money, the IRS looks at it as an expensive hobby. If they kept allowing it, people would get “businesses” in order to write off things from their taxes.

Alan covers this stuff in the podcast, so if you haven’t listened, I suggest you give it another good listen.